The Risk Of False Claims Act Liability Is Rising

06/19/2012

The state of Georgia will soon join a growing number of jurisdictions enacting False Claims Act statutes with far-reaching implications. The “Georgia Taxpayer Protection False Claims Act” authorizes the state attorney general and private citizens to seek civil penalties and treble damages on behalf of the state and any local government that pays a false or fraudulent claim to any individual or entity.

This reflects a nationwide trend to expand False Claims Act liability beyond the healthcare and government contract arenas, and has led to a number of FCA lawsuits being filed on a variety of grounds:

State FCA suits for unpaid taxes. In April 2012, the New York Attorney General alleged in a $300 million FCA suit that Sprint-Nextel Corporation underreported state and local sales taxes on flat rate calling plans. Similar suits have been filed by whistleblowers in Illinois against Internet companies for allegedly failing to collect state sales taxes.

State FCA suits related to public pension funds. Beginning in 2009, several states have brought FCA suits against financial institutions for allegedly defrauding state pension funds. Bank of New York Mellon was sued in three states for purportedly fraudulently calculating foreign currency trades. California and New York are currently considering FCA suits against a number of entities for allegedly bundling low-quality mortgage loans into securities that were sold to state pension funds.

FCA suits for mortgage fraud. The United States Department of Justice disclosed in 2012 that it had filed six FCA lawsuits against financial institutions for allegedly submitting false statements to the government regarding FHA-insured loans during the mortgage crisis of 2007-2009. These suits were settled as part of a global $25 billion settlement involving other mortgage-related litigation.

FCA suits related to import/export laws. Early in 2012, the DOJ intervened in a qui tam suit against a Japanese company for falsely reporting to U.S. customs officials the origin of its ink colorant product. The product originated in China and allegedly underwent only a superficial finishing process in Japan and Mexico to avoid antidumping duties.

State FCA suits based on unclaimed property. In January 2012, a whistleblower group filed a $1.6 billion FCA suit against several insurance companies for allegedly failing to turn over unclaimed life insurance proceeds to the State of Illinois. This represents a new frontier for FCA liability that could apply to unused deposits, credit balances, escrow accounts, and even gift cards.

The increased risk of FCA liability demands vigilance and raises a host of issues that companies should be addressing now. If you have any questions or would like to discuss these issues further, please visit theFalse Claims Act litigation page of the Haynes and Boone, LLP website, or contact:

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